After working lower early Thursday morning to trade sub-$3.600, news from the Energy Information Administration (EIA) that 91 Bcf was injected into underground storage for the week ending Oct. 8 inexplicably rallied November natural gas futures prices. However, the momentum petered out, leaving futures to close at a small loss.
Heading into the 10:30 a.m. EDT report, the November contract bottomed out at a low of $3.595, but immediately after the fresh storage data hit, futures jumped back to $3.728. After reaching a high of $3.761, the bullish enthusiasm waned as the prompt-month contract reversed lower, closing at $3.657, down 3.9 cents from Wednesday's regular session close.
Traders were scratching their heads a bit as to why futures made a run higher immediately following news of an injection that was larger than industry expectations and historical comparisons. "The jaunt higher didn't really make much sense, especially when you consider it reduced the year-on-year storage deficit and expanded the year-on-five-year average surplus," said a New York trader. "The only thing I can think of is the rally was triggered off of the fact that we dipped below $3.600 in the minutes just prior to the report's release. Breaching $3.600 could have triggered some short-covering out there."
The 91 Bcf build was slightly larger than most industry observers had been expecting. Citi Futures Perspective analyst Tim Evans had been expecting an 85 Bcf build, while a Reuters survey of 22 industry players had honed in on an 87 Bcf injection.
"The 91 Bcf net injection was above the median expectation as well as over the 64 Bcf five-year average, a bearish outcome," Evans said. "Storage is still 118 Bcf lower than a year ago, but it's a shrinking deficit. The year-on-five-year average rose to 247 Bcf, the highest since July 16. We still see the market as relatively inexpensive, but it will require some colder-than-normal weather to steer the market higher now."
In addition to outpacing the 64 Bcf five-year average injection, the actual 91 Bcf addition dwarfed last year's 60 Bcf build for the similar week.
As of Oct. 8, working gas in storage stood at 3,590 Bcf, according to EIA estimates. For the week the East Region injected 43 Bcf while the Producing and West regions added 42 Bcf and 6 Bcf, respectively.
On the tropical weather front, all indications are that Hurricane Paula will not be a threat to Gulf of Mexico oil and gas infrastructure. As of Thursday afternoon, Paula was moving east across western Cuba.
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